CDM Due Diligence Idete reforestation project in Tanzania

Prepared for the Ministry of Finance, Norway November 24, 2008

Perspectives GmbH Point Carbon AS

Im Tobelacker 23 7120 St.Olav Akersgata 55

8044 Gockhausen 0130 Oslo

Switzerland Norway

www.perspectives.cc www.pointcarbon.com

1

Contents

Executive Summary .................................................................................................... 5

1. Aims of the study .................................................................................................... 6

2. Due diligence basis ................................................................................................ 6

3. CDM background information ................................................................................. 8

3.1. AR Credits ..................................................................................................... 8

3.2. The CDM project cycle .................................................................................. 9

3.3. The PDD development (~3 months) ............................................................ 10

3.4. Validation (~2 months)................................................................................. 11

3.5. Registration (8 weeks) ................................................................................. 11

3.6. Monitoring, verification and certification and CER-issuance ........................ 12

3.7. CER-Channeling: Support in CER sales ..................................................... 12

4. Registration risks .................................................................................................. 12

4.1. Methodology risk ......................................................................................... 12

4.2. Host country approval risk ........................................................................... 15

4.3. Land eligibility for reforestation project activity ............................................ 16

4.4. Additionality ................................................................................................. 16

4.5. Technical capacity of developer to develop required CDM documentation . 20

5. Implementation risks ............................................................................................ 20

5.1. Financing risk .............................................................................................. 20

5.2. Technology risk ........................................................................................... 21

5.3. Management risk ......................................................................................... 21

6. Operational risks .................................................................................................. 22

6.1. Risk of natural disturbances ........................................................................ 22

6.2. Risk of intentional conversion to non-forest land ......................................... 23

6.3. Risk of monitoring failure ............................................................................. 24

6.4. Permanence ................................................................................................ 24

7. Quantification risks ............................................................................................... 25

7.1. Baseline risk ................................................................................................ 25

2

7.2. Leakage risk ................................................................................................ 25

7.3. Project sequestration risk ............................................................................ 25

8. Social and environmental impacts ........................................................................ 26

8.1. Current land tenure on the project area ....................................................... 26

8.2. Displacement of population caused by the project ...................................... 28

8.3. Displacement of agricultural production (including grazing) ........................ 29

8.4. Species diversity and appropriateness for the site ...................................... 29

8.5. Treatment of staff ........................................................................................ 29

8.6. Stakeholder involvement in project .............................................................. 35

9. Level of corruption ................................................................................................ 38

10. Political stability .................................................................................................. 39

11. Conclusions ........................................................................................................ 41

Annex ....................................................................................................................... 42

3

Disclaimer

This report has been produced exclusively for the use of the Norwegian Ministry of

Finance in connection with the Green Resources Idete plantation project and should

not be relied on by other parties/entities to inform a potential investment decision in

this or any other project owned or operated by Green Resources Ltd.

All Green Resources documents (including reports, budgets, business plans,

presentations etc.) given to the due diligence team are assumed to be copies of

official company documentation that conform to the originals.

The following report is a risk assessment for the Idete project only and not an

assessment of the company Green Resources Limited or any of its subsidiaries. All

aspects of the assessment such as the financial and legal due diligence only cover

the Idete project activities as requested by the Clean Development Mechanism

(CDM).

Information contained in this message is made available without any express or

implied representation or warranty. Furthermore, Point Carbon and Perspectives

disclaim liability for any expense incurred, or any damage or loss sustained which

may or could arise from direct, indirect, special, incidental, consequential or punitive

damages and which may be attributable, directly or indirectly to the use of or reliance

upon any information in this report.

4

Addendum to Final Draft

Point Carbon AS and Perspectives GmbH completed this report on the basis of on-

site interviews, direct observations and various official documentation made

available by Green Resources Ltd. before and at the time of writing in

October/November 2008. Wherever possible, information gathered on-site was

cross-referenced with secondary sources.

Comments and suggested corrections for the due diligence report were submitted

by Green Resources in December 2009 and were duly examined by Point Carbon

and Perspectives. It was found that none of the comments or suggested corrections

contradicted information made available to the authors during the site visit and at

the time of writing. Neither Point Carbon AS nor Perspectives GmbH are in a

position to make further checks on the veracity of this new information and therefore

the report has not been altered since completion in November 2008.

Point Carbon AS and Perspectives GmbH recognise that since publication of this

report, Green Resources Limited have completed a full CDM project design

document (PDD), which contains new information pertaining to a number of the

issues and risks raised here.

Point Carbon AS and Perspectives GmbH again thank the staff of Green Resources

Ltd. for their openness and cooperation during and subsequent to the site visit to the

Idete plantation.

5

Executive Summary

The Ministry of Finance, Norway is interested in buying CERs from the Idete

reforestation project of Green Resources Ltd. in Tanzania, Africa which aims for CDM

(Clean Development Mechanism) registration. The project area currently consisting

of 7330 ha of grassland will be transferred into a high value timber plantation with the

purpose of commercial wood production in compliance with the FSC (Forest

Stewardship Council) and CCBA (Climate, Community and Biodiversity Alliance)

standards.

The objective of this study is to assess the risk of this reforestation project under the

CDM. Successful CDM registration, subsequent CER generation and sale of CERs

would generate an additional revenue stream for this project needed to make it

financially attractive. At the request of the Ministry of Finance the environmental and

socials aspects of the project were assessed in more detail than mandatory for CDM

project registration.

The analysis of risks for the Idete reforestation project activity as currently set up

shows risks in many areas that are key for successful CDM registration. Many of

these issues can be addressed by improving project design. However, some may

pose significant threats to the project‘s success if not mitigated immediately. They are

listed below:

unconfirmed additionality due to inconsistent financial information

unconfirmed early CDM consideration due to unclear start date of project

activity

potential gap in methodology applicability due to unclear degradation state of

soil

incomplete monitoring plan

missing host country forest threshold definitions

title deeds for leased land have not yet been issued and carbon rights are

unclear

with regard to community investment there are significant discrepancies

between budgeted investments and actual investments realized on site

Because of these threats the project is overall rated as ―high risk‖ and the issues

listed need to be resolved before Green Resources submits the required documents

for validation.

6

1. Aim of the study

The Idete project activity – developed by the company Green Resources Ltd (in the

following ―Green Resources‖) is located in south-eastern Tanzania and involves the

reforestation of 7330 ha grassland to create a high value timber plantation using

Eucalyptus and Pine species. The project itself is advanced in implementation,

having started first plantings in 2006. Until today, 1072 ha have already been

planted. The main purpose of this reforestation project is commercial wood

production in compliance with the Forest Stewardship Council (FSC). The

establishment of plantations as a renewable source of wood supply is expected to

result in twofold benefits: (i) generation of carbon stocks and greenhouse gas (GHG)

removals by sinks and (ii), reduction of threats to natural forests. Therefore, the

project offers potential to be developed as a CDM project and generate temporary or

long-term CERs (Certified Emission Reductions). The Ministry of Finance of Norway

(in the following ―Ministry of Finance‖) has assigned Point Carbon AS (in the following

―Point Carbon‖) and Perspectives GmbH (in the following ―Perspectives‖) to conduct

a thorough CDM due diligence assessment in advance of making a final investment

decision.

The main goal of this study is to assess the risks of this reforestation project under

the rules of the CDM in order to enable the Ministry of Finance to assess the

likelihood of receiving tCERs/lCERs if a forward purchase agreement is concluded.

The due diligence report therefore evaluates; (i) the likelihood of the CDM registration

of the Idete reforestation project and; (ii) the risks of actually receiving tCERs/lCERs

from the project.

A second goal of the study is to examine the degree to which the project will bring

positive, long term benefits to the company employees, local communities and

surrounding habitats. The Ministry of Finance puts a high priority on ensuring that its

CDM investments contribute to the sustainable development of the host country.

2. Due diligence basis

The scope of the following due diligence assessment is defined by the underlying

legislation, regulation and guidance given by relevant entities or authorities. In the

case of CDM Afforestation /Reforestation (AR) project activities, the scope is set by:

The Kyoto Protocol, in particular § 12

Decision 2/CMP1 and Decision 3/CMP.1 (Marrakech Accords)

7

Further COP/MOP decisions with reference to the CDM

Decisions by the Executive Board (EB) published under http://cdm.unfccc.int

Specific guidance by the EB published under http://cdm.unfccc.int

The selected approved CDM baseline methodology AR-AM0005, version 3

Additional documentation considered:

Project Information Notes documentation (PIN) of the Idete project dated 28th

March 2008 as provided by Green Resources

Information and documentation gathered at the site visit in Tanzania in August

2008 (documentation list Annex) and as provided by Green Resources

Relevant literature on forestry activities and existing afforestation/reforestation

(AR) projects in the host country

Publicly available information including websites

Green Resources has openly shared all relevant studies, budgets and other

information with the due diligence team and made substantial efforts the ensure staff

members at all levels (from manager to casual worker) were available for interview

during the site visit in Tanzania. The due diligence team greatly appreciate the

openness and cooperation of Green Resources management in facilitating their work.

All CDM documentation as received from Green Resources was based on version 1

of the selected CDM baseline methodology AR-AM0005. However, since concluding

the site visit the selected baseline methodology has been revised twice, and the

respective mandatory PDD-template has been changed significantly. As all of these

changes have an immediate effect on the Idete project activity, the following report is

assessed based on these new regulations, i.e. version 3 of AR-AM0005 and the new

tools and guidelines. Where the outcome of the risk assessment is different in light of

these changes, this is pointed out specifically.

The report is structured as follows: Chapter 3 explains the CDM project cycle and

introduces the potential credits to be issued by a forestry project, giving background

information on key issues to be considered. Chapter 4 to 7 describes the risks of the

Idete project activity for CDM registration including registration risks, implementation

risks, operation risks, and quantification risks. Chapter 8 addresses the social and

environmental impacts of the project, chapter 9 the level of corruption of the host

country and chapter 10 the political stability. Chapter 11 concludes.

Chapters 1-7, 8.4 and 11 were assessed and written by Perspectives, chapters 8 –

10 by Point Carbon.

8

3. CDM background information

The Clean Development Mechanism (CDM) defined in Article 12 of the Kyoto

Protocol of the United Nations Framework Convention on Climate Change

(UNFCCC) allows governments or private entities in industrialized countries to

implement emission reduction projects in developing countries and receive credits in

the form of Certified Emission Reductions (CERs), which they may count against

their national reduction targets.

The main purposes of the CDM are to:

assist developing countries in achieving sustainable development and in

contributing to the ultimate objective of the Convention,

assist industrialized countries in achieving compliance with their quantified

greenhouse gases emission limitation and reduction commitments under the

Article 3 of the Kyoto Protocol.

Forestry activities, limited to afforestation and reforestation (AR), are eligible for the

CDM, but they do not generate the standard type of CERs (for a detailed explanation

see below). They may include afforestation or reforestation of degraded land,

conversion of agricultural land to agro-forestry systems, and commercial plantations,

among others. However, only land that was not covered by forest before or on

December 31st, 1999 is eligible for AR projects. Reforestation projects have to

provide evidence that the project land was not covered by forest on 31 December

1989 while afforestation projects need to show this for at least 50 years.

Demonstration of compliance with the definition of afforestation and reforestation

depends on the host country‘s national definition of forests under the CDM.

3.1. AR Credits

The AR-credits differ from the normal CDM credits by the fact that AR-credits have to

take into account the possibility that carbon contained in the biomass of trees is at a

continuous risk of being emitted into the atmosphere. Consequently they are only

valid for a certain time span. The regulations of the CDM define the credits from

forestry projects as short-term credits (tCERs: temporary Certified Emission

Reductions) and long-term credits (lCERs: long-term Certified Emission Reductions)

with different durations of validity. Both tCERs and lCERs are of temporary nature

and have to be replaced upon expiry. Project participants can choose a crediting

period of either 20 years which may be renewed at least twice, or 30 years with no

renewal.

9

Short-term credits (tCERs) are valid for one commitment period1 of five years,

which means that credits for existing carbon stocks are re-issued after each

verification event. If the carbon stock or part of it has been lost in the

meantime, the next verification will simply yield less tCERs than before.

Liability is not an issue with this system since only existing stocks are given

credits. This makes it easier to react to fluctuations in biomass (e.g. due to

thinning). Short-term credits cannot be banked and have to be used in the

commitment period subsequent to the one among which they were issued. At

expiry, a short-term credit has to be replaced by other Kyoto units such as an

Assigned Amount Unit (AAU), a permanent CER, an Emission Reduction Unit

(ERU), a removal unit (RMU) or by another short-term (t-CER) credit. Note, it

cannot be replaced by a long-term (lCERs) credit from the same project, only

from another project.

Conversely, long-term (lCERs) credits are valid until the end of the project‘s

crediting period2. An important feature of lCERs is that they cause liability.

They have to be substituted in the case of loss, i.e. when in a verification a

lower amount of biomass is found than has been measured or credited in the

last verification. Activities like thinning which decrease the biomass temporarily

have to be taken into account when calculating the amount of lCERs. Abiotic

influences such as fire, storm or pest attacks mean a difficult calculable risk in

this case. At expiry, the lCER has to be replaced by an AAU, permanent CER,

ERU, or a RMU. It is not possible to replace an lCER by a tCER or another

lCER of the same project, only from another project.

3.2. The CDM project cycle

Any potential AR CDM project needs to be registered and approved by the CDM

Executive Board (CDM EB), the core international decision making body, before a

generation of tCERs/lCERs is possible. The necessary formal process is complex;

the major steps of the CDM project cycle are summarized in the figure 1.

In the following, each step of the project cycle is explained and complemented by

information about its typical duration.

1 The Kyoto commitment period is the period in which Annex B countries that have ratified the Kyoto

Protocol have committed to reduce their collective emissions of greenhouse gases by an average of 5.2% between 2008 and 2012 compared to the 1990 emission level. 2 Period during which a project can generate tCERs/lCERs

10

PDD development (incl. Reference

scenario, Additionality test and Monitoring Plan)

CDM

Project cycle

Project idea

CER issuance

Registration by

CDM Executive Board

Verification and Certification

Monitoring Validation

Approval by host

(and investor) country

3.3. The PDD development (~3 months)

The project‘s compliance with the CDM rules is assessed on the basis of the PDD

(Project Design Document), which is the key document in the CDM cycle and serves

as background for the eventual registration by the CDM EB. A PDD consists of

numerous chapters that should elucidate different aspects of the project. It needs to

be completed on the basis of a methodology for setting a baseline and monitoring

emissions removals that has been approved by the CDM EB.

The central elements of a PDD are:

the additionality test,

the description of the baseline and the estimation of GHG mitigation potential,

the monitoring plan, and

the presentation of the public stakeholder consultation

One of the major risks regarding the CDM eligibility of a project idea is the so-called

―additionality‖. Projects that are economically highly attractive and whose realization

is not facing significant barriers, are not supposed to be registered as CDM projects.

Consequently, a transparent and comprehensive description of the project‘s

economic feasibility with and without revenues through CER sales is needed.

The estimation of GHG mitigation potential is based on analysis of project and

baseline scenario (= project alternative) carbon flows. A baseline for an AR project is

calculated by determining the changes in carbon stocks in above-and below ground

biomass, litter, soils, and deadwood (depending on the chosen methodology) that

would have reasonably occurred without the project. To define a baseline, project

proponents must use an approved methodology or propose a new one to which the

Executive Board must agree.

11

Fig. 1. CDM project cycle

Another important part of the PDD is the Monitoring Plan. On the basis of the

methodology and taking into consideration the on-site circumstances of the project,

this plan determines which parameters of the project should be measured with what

methodology and in which time intervals. Furthermore, the Monitoring Plan makes a

statement on where and for how long the generated data have to be filed. A carefully

worked out monitoring plan is an essential instrument for the subsequent efficient and

successful development of the monitoring reports (please see below) – and therefore

vital for the successful generation of tCERs/lCERs.

The PDD development also requires presentation of the outcome of the local

stakeholder consultation to the project. It means that during the PDD development,

the local public has to be given the opportunity to express possible doubts

concerning the CDM project (e.g. local authorities, households, and local NGOs).

This should happen by inviting the local stakeholders to a presentation on the CDM

and the planned CDM project activity with subsequent discussion of the project. The

outcome of the local stakeholder consultation has to be included in the PDD.

Organizing the local stakeholder consultation and scheduling of invitations to

participate at an early stage are indispensable in order not to delay the PDD

development process.

3.4. Validation (~2 months)

Validation is an independent assessment of the project‘s compliance with all the

CDM rules (e.g. additionality, local stakeholder consultation, etc) by so-called

Designated Operational Entities (DOEs) (also known as a ―validator―). Validation

starts with the publication of the PDD on the website of the CDM EB which for AR

projects lasts 45 days (―public stakeholder consultation―). A ―desk review― of the

elaborated PDD and an on-site audit of the AR project are also part of the validation

process. The audit takes place after the public stakeholder consultation. During the

audit, the statements in the PDD are screened according to their validity and their

feasibility. Regarding AR CDM projects, special attention is directed to the issue of

the non-permanence of emission removals by the project participants. If the validator

determines that the requirements for a CDM project have been met then they

recommend to the CDM EB that the project be registered.

3.5. Registration (8 weeks)

The project proposal is automatically registered if the CDM EB does not object to it

within a period of 8 weeks. Until today, only one AR project has been registered.

12

3.6. Monitoring, verification and certification and CER-issuance

After project implementation, the necessary data for calculation of emission removals

is continuously collected and filed according to the Monitoring Plan. If the issuance of

tCERs/lCERs is requested, emission removals have to be verified and certified by a

second DOE. Verification of an AR CDM project can only be done every five years. A

further requirement for AR projects is that verifications should not systematically

coincide with peaks in carbon stocks. In other words, verifications are not allowed to

be carried out consistently just before harvestings reduce the standing carbon stock.

The verification report is submitted to the EB and made publicity available. Based on

the successful verification and certification the EB will then issue the corresponding

amount of credits.

3.7. CER-Channeling: Support in CER sales

CERs can be sold in a forward contract or after issuance. The timing of sales has a

strong impact on the price that can be achieved.

4. Registration risks

4.1. Methodology risk

The selected approved baseline and monitoring methodology ―Afforestation and

reforestation project activities implemented for industrial and/or commercial uses‖

(AR-AM0005 version 03) can be applied for the Idete reforestation project activity if

all of the following applicability conditions are fulfilled:

a) The project area is covered with grasslands with low soil carbon content

(compared to the expected soil carbon content under the project activity)

because of soil degradation, or because climato-edaphic conditions naturally

lead to thin, infertile soils with low carbon content.

b) Land cover within the project boundary is in steady state as grassland

c) Natural regeneration is not expected to occur in the project area because of

the absence of seed sources or because land use practices do not permit

the establishment of tree vegetation carbon stocks in soil organic matter,

litter and deadwood can be expected to decrease more or increase less in

the absence of the project activity during the time frame that coincides with

the crediting period of the project activity, relative to the baseline scenario.

Lower soil carbon under grassland compared to plantations or secondary

forests can be expected under tropical conditions, it cannot necessarily be

expected under non-tropical conditions; evidence has to be provided that the

13

exclusion of soil organic carbon is conservative for the project case through,

e.g. representative scientific literature.

d) Flooding irrigation is not permitted

e) Soil drainage and disturbance are insignificant, so that non CO2-greenhouse

gas emissions from these types of activities can be neglected

f) The amount of nitrogen-fixing species (NFS) used in the AR CDM project

activity is not significant, so that greenhouse gas emissions from

denitrification can be neglected in the estimation of actual net greenhouse

gas removals by sinks.

These conditions are fulfilled by the Idete project as follows:

a) Partially fulfilled. The present vegetation in the project area (apart from the

already afforested part) consists of savannah-like communities derived from

sub-montane forest, dominated by grass with scattered shrubs and trees

and riverine vegetation. The dominant grass species are fire adapted

Hyparrhenia sp. The land cover in the project area is grassland, the riverine

vegetation areas are set aside as protected areas.

At the time of publication, the soil analysis for the Idete project area was not

yet available. According to the Idete EIA the soil types within the project area

consist of a mixture of red and yellow clays with dark humid top soils, whose

agricultural productivity rating is medium. This corresponds to the good

observed growth rates of the already planted Eucalyptus and Pine species.

The only publicly available soil map of Tanzania is from the Geological

Survey Department in Dodoma and made in 1977. It classifies the soils of the

Idete project region as a Rhodic Ferralsol (World Soil Classification of the

FAO).

Ferralsols are characterized by the dominance of kaolinite clays and a

residual accumulation of iron and aluminium oxides and hydroxides, a stable

soil structure, a low silt/clay ratio and a very low content of weatherable

minerals. They are deep to very deep and generally show yellowish or

reddish colors. In summary, Ferralsols are poor soils chemically but have

good physical characteristics: because of their high permeability and stable

micro-structure they are less prone to erosion. Nevertheless the EIA reports

that landslides in the project area are common in steep slopes and that some

areas have been exposed to excessive annual fires and cultivation and are

therefore exhausted in humus content and prone to erosion.

A final judgment of soil quality based on the existing data is not possible. The

carbon content of the soil needs to be sampled and analyzed and the soil

14

degradation assessed properly according to the requirements3. Yet as

Ferralsol soils are generally not known as infertile soils, this potentially

represents a risk for the methodology‘s applicability.

b) Probably fulfilled, the grassland with scattered trees and shrub has remained

as it is since generations and is therefore assumed to remain in a steady

state. Evidence thereof needs yet to be presented.

c) Fulfilled, as natural regeneration is not expected to occur in the project area

as the tall dense Hyparrhenia species prevent the only sparse available

seeds from germination.

d) Probably fulfilled, as plantation will not be irrigated. Seedlings are planted at

the beginning of the rain season between December and Mai, leaving them

enough time to growth and establish roots to access the soil water before

the beginning of the dry season. However, flooding irrigation is applied in the

nurseries located within the project area where the seedlings are raised until

the plants are approximately 25 - 30cm tall and ready to be planted.

e) Partially fulfilled. According to the site preparation and planting guidelines of

the working manual the project area soils are prepared as follows: the

plantation site is first cleared of unwanted vegetation by burning the whole

area if it is covered by heavy grass which is the case for the whole project

area. This procedure would cause much CO2 emissions. At the site visit

Green Resources showed the already planted areas and demonstrated that

manual spot weeding is realized instead of clearing and burning the whole

area. Consequently, the working manual needs adjustment and the site

preparation to be checked carefully. Following, pitting (30x30x30 cm in size),

planting, weeding (1 m in diameter around the planted tree), slashing and

beating up of competitive grasses is carried out manually using hand tools.

As all of these activities are performed manually on local plantings spots

only, the soil is not expected to be disturbed significantly. However, the

nurseries located within the project area cause some soil disturbance as

nursery sites first are cleared of all trees and roots followed by a

replacement of the top soil (~30 cm deep) of the seed beds by a fertilized

soil mixture. Also, to protect the planted areas from the serious problem of

fires, a large belt around the plantation areas is burned down. This causes a

large amount of greenhouse gas emissions and represents a major problem

(compare chapter 6.1).

f) Fulfilled, as tree species to be planted in the project area are Eucalyptus and

Pines species which both are not nitrogen fixing tree species.

3 EB 41, Annex 15: Tool for the identification of degraded or degrading lands for consideration in

implementing CDM A/R project activities

15

4.2. Host country approval risk

Tanzania ratified the Kyoto Protocol on August 26, 2002 and also established a

Designated National Authority (DNA) – a national institution overseeing CDM project

approval. The DNA has developed a ―Handbook for Clean Development Mechanism

project activities in Tanzania‖ in 2006 and a ―Clean Development Mechanism (CDM

implementation guide‖ 4. Both documents give important information about CDM

project opportunities in Tanzania and procedures required from Project Idea Note

(PIN) stage to issuance of CERs. The handbook is currently under revision, a 2007

version is available online5. According to the handbook, AR project activities have to

be addressed first by the Ministry of Natural Resources and Tourism through the

Forest and Beekeeping Division before the DNA can approve them. For all CDM

projects an administrative fee of at least 2.5% of the estimated CERs is charged by

the Tanzanian DNA for the technical and administrative reviews of both the PINs and

PDDs6.

As of today (October 29, 2008), the DNA did not report any national forest threshold

definitions to the EB7. At the visit of the DD-Team with the Tanzanian DNA in Dar Es

Salaam on October 25, 2008, Mr. Richard S. Muyungi, the head of the Tanzanian

DNA, told the DD-Team that the national forest definitions should be reported to the

EB by the end of October 2008. As long as these national forest definitions are not

reported to the EB, an AR project activity cannot be registered at the UNFCCC.

Consequently, the Idete project could currently not be registered as a CDM project.

Mr. Muyungi also told the DD-Team at the meeting that according to the Tanzanian

CDM Investors Guide the government needs to be on the board of a company

seeking for CDM project registration. This would mean a major intervention in the

company ownership structure and may influence the amount of CERs the project

company would receive if the project is implemented successfully. As theTanzanian

CDM investors guide is not publically available and until today was not provided to

the DD-team by the Tanzanian DNA this issue urgently needs further exploration.

Conclusion: the host country approval risk is rated low without accounting for the

government ownership issue. However, if the DNA does not report the threshold, this

would result in complete project failure.

4 A handbook for Clean Development Mechanism (CDM) project activities in Tanzania. Permanent

Secretary, Vice President‘s Office, Dar Es Salaam Clean Development Mechanism (CDM), a National Implementation Guide, Environmental Protection and Management Services, Dar Es Salaam. 5 Web address for both documents:

http://www.cdm.or.tz/index.php?option=com_docman&task=cat_view&gid=35&Itemid=50 6 According to 2007 handbook version

7 Modalities and procedures for afforestation and reforestation project activities under the CDM:

paragraph 8 (a)–(c) of the Annex to Decision 5/CMP.11

16

4.3. Land eligibility for reforestation project activity

To demonstrate the land eligibility for a CDM reforestation project activity8, project

participants have to demonstrate that at the moment of the project start date as well

as on 31 December 1989 the land did not contain forest as defined in the forest

threshold definitions of the host country. Project participants must provide proof in

form of documentation that reliably discriminates between forest and non-forest land.

In light of these requirements the following factors concerning the vegetation cover

documentation may increase project risk:

a) Tanzanian DNA has not yet defined the forest threshold values (required to

distinguish forest and non-forest in current and historical environment)

b) The satellite image provided at the site visit was dated 1990. Interpretation

of 1990 satellite image patterns was based on 2007/2008 ground reference

data, resulting in unreliable mapping of 1990 vegetation cover type (due to

possible vegetation cover changes on reference site in 18 years between

image and ground survey).

c) No evidence for the land coverage at project start year was provided (project

start year unclear; see chapter 4.4).

d) Land eligibility has to be checked for each discrete parcel of land

Conclusion: the available information is considered insufficient for project approval.

Documented proof is required to substantiate claim of absence of forests since 31

December 1989. Land eligibility according to AR-CDM requirements needs to be

assessed again when the final forest threshold definitions are known.

4.4. Additionality

Starting date of the AR project activity

To register an AR project under the CDM, project participants have to provide

evidence that its starting date was after 31 December 19999. Also, they must indicate

awareness of the CDM prior to the project activity start date10, and that the benefits of

the CDM were a decisive factor in the decision to proceed with the project. This

evidence shall be based on (preferably official, legal and/or other corporate)

documentation that was available to third parties at, or prior to, the start of the project

activity.

Green Resources documented the start date of the Idete project as 18th September

2003, representing the date of the allocation of the land from the ‗Ministry of Land

8 EB 35, Annex 18: Procedures to demonstrate the eligibility of lands for afforestation and reforestation CDM project activities

9 A/R Methodological Tool: Tool for the Demonstration and Assessment of Additionality in A/R CDM Project Activities (Version 02).

10 EB 41, Annex 46: Guidance on the demonstration and assessment of prior consideration of the CDM

17

and Human Settlement Development Land Division to Escarpment Forest Company,

a subsidiary which merged with Green Resources in 2001. This allocation represents

a step in the process of acquiring a long term lease for land in Tanzania (compare

chapter 8.1) but not the final approval and the issuance of the title deeds (which is

currently underway). This starting date would generally qualify for CDM registration

as it is after 31 December 1999.

At the site visit of the plantation the DD-team learned that trial plantations within the

Idete project area were already established in 2002 which may be considered as first

project activity. The project idea and first planning would thus have occurred even

earlier. The actual planting started in 2006.

Concerning the early CDM consideration, no written evidence thereof for the Idete

project was provided to the DD-team, in spite of repeated requests for clarification.

Green Resources argued that it is a company strategy to realize all Green Resources

projects as carbon projects. Under the CDM rules, this argument does not qualify as

serious CDM consideration. Evidence has to be provided for each specific project.

Conclusion: the project start date is unclear due to the long duration of acquisition

process and company name changes. The project start year should be consistent

with first project activity and land acquisition timeline. The latter should be presented

transparently and a sound argumentation should be provided why a certain step

within the land acquisition process qualifies for project start year.

Evidence for serious CDM consideration was not provided for the Idete project. If

such evidence cannot be presented, there is a high risk that the project will not be

validated. The CDM EB has repeatedly stressed the importance of this issue and

lately rejected many projects which could not transparently provide evidence for

serious CDM consideration prior to project start date.

a) Investment analysis

A CDM reforestation project has to prove that it would not have happened anyway by

applying the so called ―Additionality tool‖11. Projects that are economically highly

attractive and whose realization is not facing significant barriers, are not supposed to

be registered as CDM projects. Green Resources applied the investment analysis,

though it is not clear which financial approach (benchmark approach or investment

comparison approach) they will choose to prove the additionality of the Idete project

in the final PDD.

11

EB 35, Annex 17: Tool for the Demonstration and Assessment of Additionality in A/R CDM Project Activities, Version 2

18

The IRR calculation was based on the ―monthly management budget for the Idete

plantation of the year 2008‖ document (in the following ―budget sheet‖), the ―direct

cost calculation based on all GRL plantation activities including of Idete, Uchindele,

Mapanda and Masagati FP document‖ (in the following ―GRL sheet‖), and the ―long-

term budget for the years 2008-2040‖ document (in the following ―IRR-sheet―).

The 2008 budget sheet – calculating the direct plantation cost in USD/ha- covers not

only the plantation costs (subdivided into nursery, planting, and weeding costs) but

also includes fire protection and security, road construction and maintenance,

workshop/mechanical, forest station cost (including acquisition of 3 pickups,

environmental, inventory mapping and research, training and representation,

administration, community support, land rent and acquisition). In summary, the direct

plantation cost also includes maintenance and capex. For each of the above

categories salaries, material, and fuel cost are listed per month and summarized for

the year 2008.

Analyzing this sheet, several inconsistencies were found, e.g.:

Total yearly cost does not match with summarized cost for all months (Jan-

Dec) for several categories. e.g. USD 64,166 instead of USD 39,166 for

school community support

Yearly cost is calculated per ha based on 1000 ha planting in 2008. Land rent

however is included for all 11,500 ha.

Intransparent costs items like ―other cost‖ or ―other external consultants and

studies‖ and ―material cost‖ for several categories already listed

Full cost of EIA are calculated (USD 14,532) for each plantable year

Fire equipment costs appear high compared to the actual situation on site

Very high (and irreproducible) diesel cost for ―workshop/mechanical‖ in

addition to fuel consumption for nursery, planting, weeding, etc.

Total of permanent staff in budget (39) higher than at site visit (18)

The total cost of the 2008 budget sheet (702 US$/ha) was transferred to the IRR

sheet and listed under the cost item ―direct plantation cost/ha USD‖. However, direct

plantation costs did not match between the budget sheet (702 US$/ha) and IRR-

sheet (750 US $/ha). Green Resources clarified that the 750 US$ figure was taken

from the GRL-sheet. They argue that the cost structure between Idete, Uchindele,

Mapanda and Masagati plantations are fairly equal, thus making the average cost per

ha (calculated from all four plantations) representative also for the cost of Idete. In

addition, they explain the difference with missing cost items in the budget sheet like

training, management, mapping, etc. However, as all of these items are specifically

included in the budget sheet (see above) the cost difference still remains unclear.

19

Assessment of GRL-sheet is not possible as it is not transparent and cost items

cannot be reproduced based on the information available.

The IRR-sheet shows several discrepancies, too, e.g.:

Maintenance cost of 30 USD/ha (general supervision, fire protection,

community relations, non-commercial thinning and pruning) are already

covered in direct plantation costs: cost are double counted

Plantation overhead cost is already covered in above direct plantation cost/ha,

nevertheless Green Resources again adds a 35% overhead on plantation and

maintenance: again double counting

Direct plantation cost includes purchase of 3 vehicles. This number is

subsequently used for both plantation durations from 2008-2015 and from

2028-2036. For each of these single years, new vehicles would be purchased.

Direct plantation cost includes cost of Environmental Impact Assessment

Report EIA (14,532 USD). This number is subsequently used for all years of

plantation duration (see above; so each year a new EIA would be realized)

Most of capex cost for the years 2008-2040 (forest station & infrastructure:

USD 837,000, central nursery: USD 333,000, vehicles: USD 290,000, and

planting equipment & heavy machinery: USD 769,000) is also already covered

in the direct plantation cost. Again double counting

Plantation area (8392 ha) in budget calculation does not match with plantable

area as estimated by the GIS expert (7330 ha). This would result in cost

differences of 796, 500 USD (based on 750 USD/ha GRL assumption).

Revenues from thinning activity are missing although Green Resources

communicated that this wood will be sold as energy wood.

Conclusion: the whole financial model is designed in an inconsistent manner. Due to

various discrepancies and duplications the budget of the Idete project and the

subsequent IRR calculation is considered incorrect. Based on the current financial

documentation it is not possible to make a statement concerning the profitability of

the project. Consequently, risk of additionality failure is rated to be very high.

b) Barrier analysis

Green Resources report high upfront financial obstacles: the project needs to raise

upfront finance for securing land leases, seed capital, and technical capacity. They

argue that no other private, commercial afforestation company exists in Tanzania

which should be proof enough that the business of re-/ afforestation is not a

―business as usual‖ scenario. Delayed return of investment and low rates of return

over a long-time frame are usual for forestry projects: when comparing CDM A/R

projects with other industries, rates of return are relatively low and occur over a long

time frame. Projects that are designed to not only deliver carbon, but also deliver

20

environmental and socio-economic benefits as the stringent CDM, FSC and CCB

standards require, are even less profitable by design and need even further support

in the form of carbon finance.

Conclusion: Green Resources should provide evidence for the financial investment

barrier (e.g. non-availability of loans).

4.5. Technical capacity of developer to develop required CDM documentation

The required CDM documentation consist of the Project Design Document (PDD),

including project description, additionality assessment, baseline and sequestration

calculations and the monitoring plan. The project developer has previously developed

two AR projects on the voluntary market. Expectation is thus that the technical

knowledge for project development is available. However, in order to reduce the risk

of rejection, the following aspects need to be considered for the final documentation:

Transparent and correct calculation of all indicators and figures is imperative

(this is not yet the case in the PIN and currently available financial

information).

The requirements and processes of the chosen methodology must be followed

exactly without modification (e.g. crediting period definition, monitoring

requirements)

Conclusion: Some of the draft information available at this point does not yet fulfill the

above requirements and therefore needs to be adapted (compare chapters 6.3). The

methodological capacity of the project team can therefore not be fully determined.

However, if documentation and calculation standards cannot be improved against

current situation, there is a high risk of methodological failure.

5. Implementation risks

5.1. Financing risk

Costs for the Idete project have been quantified but need to be revised (compare

chapter 4.4). The financing is in place, the Idete project is equity financed by the

company stakeholders of the mother company Green Resources in Norway. The

Idete forest management plan also mentions that the project has loans from some

financial institutions, however, no details of these loans were given. According to the

company annual report 2007 the company‘s liquidity was satisfactory in 2007, but

shareholders have provided loans to the company when required. The board

believes that this situation will continue. In 2007 the company generated a net profit

of 22 million NOK. Financial risks such as exchange rate risks, interest rate risks,

credit risks, liquidity risks and capital risk management risks are discussed in the

21

company annual report. The company is not hedging or insuring any financial risks.

Concerning the Idete project the exchange rate risk marks a major factor because of

the instability of the local currency. According to Green Resources the real effect of

currency fluctuations is limited because wood is a global commodity driven by

international market prices and traded in international currencies. The long term goal

of Green Resources is that most of the wood produced in Green Resources‘

plantations will be exported.

Conclusion: the risk of financial failure is considered to be low as company

stakeholders are financing the Idete project and the company’s liquidity was

satisfactory in 2007. Green Resources needs to clarify if additional loans are part of

the project financing.

5.2. Technology risk

Green Resources is operating several plantations in Mozambique and Tanzania. As

a forestry company they have the technical know-how from seedling establishment in

the nursery to sapling planting in the plantation and forest plantation operation.

Operating in Tanzania they are also know local conditions on-site. Forest carbon

project use the same standard techniques as normal forestry projects: GIS and GPS

are used to measure and survey boundaries and to analyze spatial information,

permanent plot data collection and analyzing is used to monitor changes as in every

forest inventory assessment. The site visit confirmed the technical experience and

know-how of Green Resources in the forestry sector. Although the selected species –

both Pine and Eucalyptus – are exotic tree species in Tanzania they have shown

good grow results. Both species have already been planted in Tanzania for several

years by the government. In addition, the results on the Idete plantation site from the

trial plantations planted in 2002 show good results.

Conclusion: the technological risk assessed is rated low.

5.3. Management risk

The Managing Director of Green Resources (Tanzania) is new and was formerly

manager of the government owned plantations near Sao Hill12. He brings long

experience in Tanzanian forest plantation management to Green Resources. As far

as is known, he does not have significant experience managing a commercial

enterprise. The second level of management (compare chapter 8.5) including

plantation manager, personnel manager, GIS manager, and other mid level

plantation manager have a sound education and work experience.

12

During the site visit it was claimed by one source that the former manager had passed away. Green Resources have subsequently denied this claim stating that he is now a business development manager. Since the due diligence team see no reason to doubt Green Resources in this matter, we have corrected the report accordingly.

22

The risk of management failure mainly depends on company processes such as

communication flow, knowledge exchange, interdisciplinary problem approach as

well as the leading quality of the respective managers. Such an in-depth assessment

however would go beyond the scope of this due diligence assessment.

Conclusion: The risk based on education and experience of the managing level is

rated low.

6. Operational risks

6.1. Risk of natural disturbances

Fire represents the most serious natural threat to the Idete forest plantation. Human

and natural induced fires are common in the region, especially during the dry season.

Also, Eucalyptus trees boost forest fires due to their highly flammable oils. To protect

their plantation Green Resources has realized a sound fire management plan13 with

effective measures already in place. The already planted area of 1072 ha is

protected by fire belts (15- 60m wide, depending on location and wind situation).

Such fire belts can coincide with roads or rivers but often are areas where the grass

is burned down to create a barrier between the plantation area and the surrounding

grassland. The same is planned for all of the plantation areas to follow. Although this

makes perfectly sense from a fire mitigation point of view this procedure nevertheless

emits greenhouse gases. The non-CO2 emissions from biomass burning (fires)

resulting from incomplete combustion of the biomass have to be calculated according

to the baseline methodology. The CO2 emissions from biomass burning do not have

to be accounted for since changes in the loss of carbon stock in the grassland in the

living biomass are already included in the calculated part of the emissions from

biomass loss. Also, the preparation of these fire belts may represent a risk for the

plantation if the fire is getting out of control. Protection measures include permanently

occupied fire watch towers (one already built, more are planned), a trained fire crew

which is on duty day and night, fire patrols and community involvement in fire

reporting and fighting. Necessary firefighting equipment is in place, but

notwithstanding the question remains if a really huge fire can be extinguished with

regard to the tank capacity of the currently only available fire truck. However, Green

Resources argues that the focus is on fire prevention and early detection. In

summary, it is evident that Green Resources takes the fire danger very seriously.

Wind breaks and insect attacks often represent a major risk for monoculture

plantation consisting of trees of the same age. In the Idete project area winds are

strong with main wind direction East to West. Lately, a minor incident of wind break

13

Fire protection plan for Idete forest project, fourth edition, January 2008

23

has been reported on the governmental plantations in the Sao Hill region. Eucalyptus

generally are not prone to wind breaks, they are even planted as wind barriers in

some plantations. However, the occurrence of wind breaks also strongly depends on

the soil quality: trees on shallow degraded soils are more prone to wind breaks than

trees rooting in deep soils. Consequently special precaution should be taken on

locations with degraded soils or much erosion. So far, Green Resources has not

addressed the wind risk issue.

On the site visit it was remarkable to see how the landscape was dominated by the

mounds of the termites. Although no reports about termite attacking plantations have

been reported for the project region this issue should not be underestimated. Both

Pine and Eucalyptus species are not indigenous to Tanzania. While Eucalyptus has a

dense wood structure acting as a barrier to insect intrusion - some single Eucalyptus

species like Eucalyptus camaldulensis are even termite-resistant (so far not part of

the plantation) - Pine species have no such natural defense mechanism and are

generally highly sensitive to insect and fungal attacks. However, both trees are

sensitive in the seedling state and when freshly planted (sapling state). So far only

few insect and fungal symptoms have been observed in Pines in the other Green

Resources plantations but no serious outbreak of pest and diseases. Green

Resources is constantly monitoring the health of the trees by so called patrolmen and

intends to put much effort into prevention (good silviculture practices, e.g. by

preventing competition of trees for nutrient and water)14. Chemical will be used in

accordance to FSC requirements.

Conclusion: The two tree species are differently sensitive to natural hazard impacts.

When planted in monoculture, even aged structures, the sensitivity increases. While

Pine species are generally more prone to fungal and insect attacks, Eucalyptus

species in return boost forest fires. The focus of Green Resources lays in the

prevention of such outbreaks which is certainly the right approach. Nevertheless, fire

still represents a major risk.

6.2. Risk of intentional conversion to non-forest land

If further land eligibility documentations (see chapter 4.3) would show that the project

land was forested after 31 December 1989 and converted to non-forest land before

commencement of an AR CDM project activity then the project developer would need

to provide transparent information that demonstrates that the land was not

intentionally converted to non-forest land for the purpose of implementing an A/R

CDM project activity.

Conclusion: This risk is considered to be low.

14

Work instructions and guidelines for plantation operations, Green Resources, April 2008

24

6.3. Risk of monitoring failure

The risk of monitoring failure is assessed based on the monitoring plan, the expertise

of the monitoring professionals, and the data availability. The current draft monitoring

plan is for the calculation and assessment of the forest plantation activity only as

required by the methodology. Environmental and social aspects are not part of this

plan and are therefore not assessed. They could easily be added to the monitoring

plan thus enhancing the project quality considerably. In the following, each of these

categories is assessed and rated separately.

Monitoring plan: The draft version of the monitoring plan as provided by Green

Resources is structured into the required sections and lists the variables to be

monitored for each section separately. Most of the sections are incomplete;

several variables which need to be monitored as required by the methodology

are missing. Some variables also need rewording as the names have to be

consistent with the names as listed in the methodology. Additionally, some

variables can be removed due to changes of methodology version. All

mistakes are listed in the Annex. The current draft version of the monitoring

plan represents a high risk for monitoring failure and would not be accepted for

project registration. However, this risk level is based on the currently available

draft version. With respective corrections in the final version this risk can be

reduced significantly.

Expertise of the professionals: The failure risk due to the expertise of the

monitoring professionals is rated low. Based on their education and

experience from other forest plantations all the professionals responsible for

implementation and control of the monitoring plan (e.g. GIS, forest inventory,

etc.) are judged to be competent.

Data availability: at the time of the site visit, data from field surveys for

baseline assessment were not yet available. General GIS data for the project

area such as project boundaries and already planted area were already in

place. In general, all field monitoring variables can be measured with known

standard techniques which are not considered to be difficult. GIS map data

such as land cover maps and satellite pictures were obtainable. Therefore the

failure risk is reduced to the management process of the data measurement,

collection and storage as well as the training of the people involved. With

competent people this risk can be rated low.

6.4. Permanence

Although the project developer opted for temporary credits (tCERs) permanence is

an issue. Once the forest is lost tCERs will not be issued anymore. For the Idete

25

project the highest risk is loss of forest due to fire (compare chapter 6.1). As

respective fire mitigation measures are in place the risk can be reduced from high to

medium.

7. Quantification risks

7.1. Baseline risk

The baseline risk is due to the possibility that changes in the baseline - for example

because of natural succession - could invalidate "additionality" and therefore the

"certificability" of the green house gases offsets deriving from a project. According to

the selected methodology the baseline scenario is quantified ex ante at the beginning

of the AR CDM project activity and will hold throughout the crediting period. As Green

Resources has chosen 3x20 years for the crediting period, the first 20 years face a

baseline risk of zero. After 20 years the baseline has to be newly quantified again

with a fixed baseline for the next 20 years, and again for the last 20 years. The

baseline risk for these 40 years cannot be rated as is will also depend on other

potential CDM AR projects located closely to the Idete project activity.

7.2. Leakage risk

The selected baseline methodology requires to assess and account leakage from

displacement of fuel wood collection outside the project boundary and displacement

of grazing activities attributable to the AR CDM project activity. No indications on the

presence of grazing on the project land have been encountered at the site visit. Fuel

wood collection is also not an issue in these grasslands as the local community of the

nearby villages collects fuel wood in the nearby forests. The PDD should take

reference and document that both of these potential leakages are not an issue for the

Idete forest project. If this is the case leakage risk is rated zero.

7.3. Project sequestration risk

Carbon sequestration highly depends on the grow rate of the selected species on the

specific soils in the project area over time. Yield models are used to calculate these

grow rates which should be adjusted to the local soil and climate conditions and build

based on local grow data. The presented yield models looked good although some

showed a quite high variation in grow rates. The average above ground carbon

sequestration was reported to be 177.5 t/ha for Pinus patula and 136 t/ha for

Eucalyptus saligna. This would result in 650,619 t carbon for Pine and 498,440 t

carbon for Eucalyptus assuming a 50%:50% share for the 7330 plantable area. The

carbon sequestration values seem rather high when compared with values from

literature of 120 t/ha for Pine, respectively 80 t/ha for Eucalyptus. However, soil and

climate conditions can increase growth rate and thus carbon storage considerably.

26

This topic needs further exploration. Below-ground carbon sequestration will be

calculated using the root/shoot ratio approach. A final assessment of the

sequestration risk based on the currently available data cannot be conclusively

undertaken. However, it was obvious from the site visit that Green Resources is

taking the calculations very seriously and is working accurately on this topic.

8. Social and environmental impacts

8.1. Current land tenure on the project area

Current land ownership structure of the Mafinga area

From an administrative perspective the Mafinga province consists of 6 urban

townships, rural village owned land, Sao hill forest plantations, Green Resources

plantations and tea plantations.

Summary of current land ownership rules

In May 2001 the 1999 Urban Land Act #4 and 1999 Village Land Act #5 entered into

force, bringing with them drastic changes to the way that land ownership is managed.

New international investment guidelines also came into force in 2001, administered

by the Tanzania Investment Centre (TIC)

All land in Tanzania belongs to the state and can only be leased on a long or short

term basis to private entities. The land leasing process is bottom up requiring

approval from all government levels (village, district, regional, country).

Land can fall into one of four categories

General land for private use

Urban land for urban small holders

Village land for village small holder farmers and hunters

Reserve land

Anyone laying claim to a plot of land for private use must have a ―Certificate of

Occupancy‖ (COO), which is similar in nature and legal stature to title deeds. A COO

normally lasts 99 years.

According to the Mafinga district land officer, village and district level approval for the

land application was granted prior to 2001. The land officer also explained that

regional level approval was granted in 2001 and documentation was seen showing

that in September 2003 the Minister for Land and Human Settlement approved the

lease request (country level). But it was not until May 2007 that the district council

requested Presidential approval from the Ministry of Land to transfer the land from

village land to general land.

27

There was no immediately available explanation as to why there was such a long

delay in seeking Presidential approval. Only once approval has been obtained will

GRL be issued with the Certificate of Occupancy. When asked why there was such a

delay, the Mafinga Land officer replied that Presidential approval often takes time. He

could not say precisely when approval will be granted.

Cost of land

According to the project‘s financial statement the cost of leasing the land is 500

Tsh/hectare, or 5,750,000 per annum. We asked the land officer to verify the cost per

hectare incurred by Green Resources to lease the land. He did not have the figure to

hand but explained that he would be able to check the amount once he returned to

his office and send to us. However, we did never receive this figure.

Risk of renationalization

According to the district land officer, there are three legal reasons why the State

could forcibly expropriate the Idete plantation site:

1) For the construction of buildings for the delivery of essential government services

such as education and healthcare. The construction of a new school and/or clinics

are typical examples, activities which do not require large areas of land and would

have a minimal impact on the plantation activities.

2) Military training or the construction of military installations. Government reserves

the right to forcibly expropriate general land for military purposes. The

construction of a military base or airport and usage for military training are typical

examples. Since there are large areas of unproductive ―village land‖ nearby the

project site and no plans for expansion of military activity in the area, it is highly

unlikely the government would expropriate the land for this purpose.

3) Other public interest. The government could, theoretically take over plantation

ownership and/or convert to another sort of productive activity in order to create

jobs. In the current pro business political climate this is a highly unlikely scenario

In the event that the government does forcibly expropriate land, it is obliged under

law to give ―fair, full and prompt‖ compensation to the original leaseholders. If

compensation is not delivered within 6 months, the original proprietors should receive

interest payments on the compensation amount. No large scale acquisitions of

private property have yet occurred so the law has not yet been tested. The

mechanism for deciding adequate and appropriate compensation is also unclear,

however, the valuation process will be undertaken by the government. It is likely that

any disputes or appeals would be dealt with via Tanzanian courts, which are

notoriously corrupt.

28

Conclusion: Green Resources needs to transparently document the approval process

through all governmental levels and provide sound argumentation why the Certificate

of Occupancy have not yet been issued. In addition, ownership of carbon rights

needs to be verified and documented.

Since the Certificate of Occupancy has not yet been officially granted by President

Kikwete, and there is no official timeline as to when this may occur, this presents an

important project risk which could jeopardize validation and deny GRL legal

ownership of the carbon rights (tCERs) of the project .

A second risk is that the government seeks to void the lease and nationalize the GRL

plantation. This risk would have a high impact but has a very low likelihood of

occurring.

8.2. Displacement of population caused by the project

According to the land planning officer and Green Resources staff there were ―a few

households‖ that used the project site for cattle grazing purposes but no permanent

human dwellings on the Idete project site. This viewpoint was corroborated by the

Idete village council, who concurred that there was no-one to their knowledge living

permanently on the project site and that it was only used for small scale cattle

grazing purposes by inhabitants of nearby hamlets.

However, according to the Idete EIA Report (2008) the picture is more unclear. The

report stated that ―GRL has followed legal procedures in acquiring the areas for tree

plantation from the villages. However there are areas with properties belonging to

individual villagers who were still grudging during the scoping exercise.‖(p.55),

Whether or not these were permanent human dwelling places, grain storage

buildings or cattle pens is unclear. The report goes on to state that valuation of

appropriate compensation ―has been done‖, and ―compensation to the affected

villagers has been done‖(p. 56).

No description of the compensation amount or valuation process has been provided

by Green Resources.

Conclusion: Since GRL provided no information on the process of identifying affected

villagers for compensation, and the level of compensation we are unable to judge

whether GRL acted fairly and in accordance with the law on compensation for

displaced people/forced acquisition of property. Certainly no complaints were heard

by villagers or officials that GRL had acted unfairly or illegally.

29

The EIA is very weak on this subject and it lacks in detail in a number of other areas,

indicating a lack of capacity on the part of the consultant and poor judgment of GRL

management in choosing the consultant.

8.3. Displacement of agricultural production (including grazing)

See above.

8.4. Species diversity and appropriateness for the site

The Idete forest plantation is planting exotic species such as Eucalyptus (mainly

Eucalyptus saligna) and Pine species (mostly Pinus patula) in combination with

establishment of trial of indigenous tree species and exotic hardwoods (approx. 5%

of the plantable area). Both Eucalyptus and Pine species do occasionally produce

natural regeneration in Tanzania. However, aggressive spreading beyond project

boundaries is considered unlikely but should nevertheless be monitored. There is a

trade-off between carbon removals achieved by exotic species versus biodiversity

benefits of native species. Still, Green Resources is trying to account for this effect by

setting aside 2830 ha for conservation areas and planting indigenous tree species.

Single rare and endangered species were reported by the EIA and should also be

protected and monitored. Although Eucalyptus and Pine are not indigenous species

they show good grow result on the Idete project site. Due to their high nutrition and

water demand, Eucalyptus species do likely have an impact on the soil system.

Ground water level therefore needs to be monitored and soil samples analyzed

regularly. Also, it is reported that Eucalyptus leaves prevent any other species from

germination. Similar Pine needles increase acidity of topsoil also preventing many

species from growing. This is not a major problem for the plantation but could

potentially be one for the surrounding grassland and forests if these two species

spread outside the plantation boundaries.

8.5. Treatment of staff

Background research on International and Tanzanian labor laws and forest plantation

labor standards was conducted prior to the field visit. On site, interviews incorporating

questions on Green Resources labor standards were conducted with the head of GR

personnel, the Green Resources plantation manager, local and international NGO

representatives, three permanent non-managerial Green Resources employees and

two casual workers.

International and national labor standards

The International Labor Organization (ILO) conventions, ratified by 170 nation states,

set out minimum labor standards for all employees of public and private organizations

in countries that ratify the conventions. Additional national level Labor standards are

30

also common. In Tanzania companies that do not fulfill ILO conventions are

therefore, by default, in breach of international and national laws.

A full list of ILO conventions can be found on the ILO website at

http://www.ilo.org/ilolex/english/convdisp1.htm

Tanzania has ratified all eight ILO core labor conventions, those on freedom of

association and the right to organize and collective bargaining; on the elimination of

discrimination in respect of employment and occupation and on equal remuneration;

on the elimination of forced or compulsory labor; and on abolition of child and forced

labor.

Unfortunately the Tanzanian government does not strongly enforce those

conventions leading to frequent violations of the human rights of workers in many

companies and governmental organizations. The most common of these breaches is

a ban by employers on the right to strike. A full list of conventions ratified by Tanzania

can be found at:

http://www.ilo.org/ilolex/english/newratframeE.htm

As well as the ILO conventions, the Tanzanian government passed an Employment

and Labor Relations Act in 2004. It mainly governs the relationships between trade

unions and employers, providing for rapid resolution of industrial labor disputes.

Voluntary Labor Standards

In preparation for the site visit studied more specialized guidelines for labor standards

in forestry and plantation work prior to the site visit. Though not obligatory, they

contain guidelines for health and safety training and equipment, common labor

problems and best practice in forestry management. Documents consulted were:

ILO Guidelines for labor inspection in forestry

And labor force sections of Climate Change, Community and Biodiversity

Alliance (CCBA) Standard

Forest Stewardship Council (FSC) Standard

Since Green Resources is aiming for certification under both the CCBA and FSC,

labor standards should already be at or near these levels.

Labor management systems

Green Resources labor force is managed by a single personnel manager, who is

responsible for contracting and distributing wages and salaries. Educated in

Pakistan, but a Tanzanian national, the personnel manager has good knowledge of

Tanzanian employment laws, including minimum wage, rules on child labor and the

31

right to organize. The personnel manager gave assurances that all employees were

issued individual contracts and offered an example contract for inspection.

The personnel manager also said that Green Resources has an employee handbook,

detailing the responsibilities, routines, working hours and Green Resources

employment policies. At the time of meeting the personnel manager did not have a

copy to hand.

General Profile of Green Resources Employees

The GRL company hierarchy is complex but in general there appear to be four levels

of employee, with commensurate levels of pay.

1) International management personnel. Including national level manager and forest

carbon manager. These members of staff report directly to the CEO and are

responsible for creating and managing the commercial aspects of the Green

Resources plantations.

2) Tanzanian management personnel. These include the plantation manager,

personnel manager, GIS manager, community manager, other mid level

plantation managers. Most are based at the Green Resources offices at Sao Hill,

however some are based at the company‘s office in Dar es Salaam.

3) Permanent Plantation staff - Nursery staff, Fire-fighters. These employees are

local Tanzanians from the Mafinga province with full time employment contracts.

For the Idete project there are 14 permanent nursery staff and around 15

firefighters.

4) Casuals during planting season. The planting season lasts for three months,

during which time large numbers of casual laborers are employed by Green

Resources. They are paid per day at the statutory minimum wage for forest

plantation workers. This was 2500 Tsh per day (about 2 US$).

Compliance with ILO core conventions and Tanzanian labor laws:

029 Forced Labor 1930

There is no evidence, nor any suggestion that Green Resources is using forced labor

at the Idete site or any other project site. This practice is banned under national labor

laws.

087 Freedom of Association and Protection of the Right to Organize 1948

The government of Tanzania is nominally responsible for protection of the right to

organize however enforcement of this convention tends to be weak at a national

level. According to the Green Resources personnel manager, all staff are entirely free

to organize and or/join various organizations. Most relevant here are the two trade

unions active in the Mafinga region. One is a well known national industrial workers

union TUICO, the other a union of forest workers, TPAWU. The head of personnel

32

explained that representatives from both unions are at the Sao hill offices on a ―near

daily basis‖ and that relations between employees and company management are

―very good‖. He also stated that there has never been a strike, nor any threat of one.

Amongst permanent nursery staff, fire fighters and casuals there is low level of

awareness of the presence of unions in the Sao Hill area since the Idete site is far

from the union offices in the town of Mafinga. However there was no indication that

the freedom to organize is being actively constrained or discouraged by Green

Resources management.

098 Right to Organize and Collective Bargaining 1949

Again, two trade unions are actively involved in protecting workers‘ rights and

negotiating for better salaries and working conditions. The level of unionization

among staff is strongest at the saw mill, however as noted above, permanent and

casual staff working on the Idete site are not, to our knowledge, actively involved with

trade unions.

100 Equal remuneration 1951

Although salaries vary widely between employment grades (manager, permanent,

casual), there was no evidence or suggestion that different salaries were being paid

for work of the same value. Casual workers, when questioned, all claimed to have the

same daily salary and Green Resources budgets assume equal salaries for workers

of the same type.

105 Abolition of Forced Labor 1957

There was no evidence or reason for suspicion that forced labor was being employed

by Green Resources.

111 Discrimination (Employment and Occupation) 1958

There was no evidence found that Green Resources employees were being

discriminated against on the basis of race, color, sex, religion, political opinion,

national extraction or social origin. At the Sao Hill offices the head of Personnel

asserted that there was an active policy of recruiting more women at management

level.

Among casual workers during the 3 month planting season at Idete, around 50% are

non-locals from surrounding regions. Many are from different tribes and ethnic

backgrounds. These workers are offered free dormitory accommodation, washing

and cleaning facilities and food. There was no evidence found to suggest that they

were being discriminated against or otherwise persecuted by company management.

33

In 2007 a group of casual workers from Green Resources approached the district

commissioner to complain that Green Resources did not provide transport from the

project site back to their respective residences in the surrounding regions after

termination of contracts. Green Resources is under no obligation to offer such a

service as there are ample bus services on the main Mafinga road and the company

already provides motorized transport to the road side from the project site. The

complaint was duly rejected by the District Commissioner.

138 Minimum Age Convention 1973

There was no evidence found or suggestion made that Green Resources employs

child labor as part of its operations at Sao Hill or Idete.

Under the ILO convention strenuous of dangerous work should not be undertaken by

children at all. This would apply to plantation activities, including planting, weeding,

felling of trees or fire fighting. It would not apply to nursery or office work. In this case

the minimum age in Tanzania is 14. Secondary school is not compulsory in Tanzania

and must be paid for. Instead some local women have sought employment at the

nursery and are likely at or just above the 14 year threshold. This fact was confirmed

by other women at the Idete village.

182 Elimination of the Worst Forms of Child Labor 1999

See above.

Wages and wage payment

Both casuals and non-managerial permanent staff members are paid at Tanzanian

minimum wage for forestry workers. Until Q2 2008 this amount stood at 2500

Tsh/day. It has since risen to 3000Tsh/day. Current work contracts have not been

altered yet to reflect this change, however the head of personnel gave assurances

that this would be done without delay.

All non-managerial permanent and casual workers interviewed in the field confirmed

that during the last planting season they were paid according to the agreed amount

of 2500 Tsh/day. One of the casual workers replied that in the previous planting

season of Jan-March 2008, he had had wages withheld from him by his plantation

supervisor. On one occasion he claims he had worked 12 days but was only paid for

five.

When asked if this wage was adequate for feeding their families during the plantation

season, two of the four non-managerial workers replied that it was inadequate and

that there were sometimes problems with availability of food due to the fact that they

could not attend to their farms. When asked if there was any alternative salaried labor

34

in the local area, none of the four other workers could think of alternative employment

other than Green Resources.

Another complaint voiced by casual workers was that in the past Green Resources

did not always pay its salaries on time. Casual workers from Idete complained that

payments were delayed by as much as a few months sometimes. This concern was

clearly voiced in the Idete stakeholder survey conducted in July 2007, where ―46.5%

claimed the company did not pay wages on time‖. After making enquiries with

company management about this issue, it was claimed that the 2007 political crisis in

Kenya was preventing them from transferring money for salaries from Green

Resources accounts in Nairobi. Both management and workers stated that late

payment of wages was no longer a problem.

Conclusion: It is important to interpret the viewpoints of casual workers in light of the

fact that they are only employed for three months of every year. The salary from GRL

provides only supplemental income over the year and should not be expected to

cover all of the employee familes’ needs. However 2500 or 3000 Tsh/day is a low

wage and, while in line with national minimum wage laws, will not provide for much

more than basic needs.

The practice of pooling funds for corporate expenditures of any kind in relatively

unstable African countries is a high risk, low reward strategy that reflects a certain

lack of financial prudence. GRL have given assurances that alternative arrangements

are now in place, which will avoid a repeat of this incident. No evidence or description

of these arrangements has yet been furnished by Green Resources.

That casual workers sometimes have to walk long distances to the project site and

are prevented from tending their own farms means that they also incur a high

opportunity cost for choosing to work for Green Resources. Green Resources could

easily help Idete casual workers avoid this expense by providing transport to the

plantation site.

Health and safety

Green Resources management personnel made assurance that workers at the

nursery had been given health and safety training and that a more comprehensive

health and safety training plan was being put in place. Nursery workers, when

questioned, could not recall the details of their health and safety training, implying

either the training is poorly communicated or not given in a systematic fashion.

Green Resources managerial staff explained that first aid kits were available at the

site office, at the nursery and on site nearby workers during the three month planting

35

season. Visual inspections of the nursery and site office confirmed that there were

adequate first aid kits available in these places.

The most serious health and safety risks on a forest plantation are those related to

the felling of trees. At the Idete site trees are still in the vegetative (growth) stage and

so felling will not begin for at least another 5 years when the plantation will be

thinned. Some pruning and thinning has already begun and GRL management gave

assurances that they were working on a comprehensive H&S training plan in this

area.

Conclusion: Green Resources must act quickly to develop a comprehensive H&S

training programme for pruners and fellers, and ensure they supply them with

appropriate safety equipment. ILO guidelines and the FSC standard demand that

these are in place and Green Resources has pledged to meet these standards.

Individual contracts

ILO guidelines as well as Tanzanian labor laws demand that all personnel, whether

employed on a permanent or casual basis, should sign an individual employment

contract containing the contract period, wage type of work expected and terms for

dismissal. The head of personnel at Green Resources assured us that this was the

case and an example contract was inspected and appeared to be in order. However

two out of the three non-managerial casual workers that we questioned could not

recall ever having signed a paper contract. Many of the casual workers are illiterate

and may have applied a thumb print instead of a signature. This should be

investigated further.

Conclusion: The treatment and conditions of workers at the Idete site seems broadly

in line with Tanzanian employment law as well as the core conventions of the ILO.

Some minor breaches of other ILO conventions and guidelines appear have occurred

in respect of contracting, prompt payment of correct wages and health and safety

awareness. Green Resources management is not fully aware of these oversights,

which indicates a certain lack of operational control. It should now act swiftly to

address these issues in the interests of its employees.

8.6. Stakeholder involvement in project

Past stakeholder consultation, prior to project construction

The stakeholder consultation programme comprises one of three programs of work

with the local community. The other two are (i) the community support programme

and (ii) community impact monitoring.

36

For any large scale construction project, stakeholders should be fully informed in

advance of project implementation and their concerns fully addressed by the

responsible company. Ideally, stakeholders should give their full consent to the

project before construction begins.

Within Idete it is unclear to what extent villagers were consulted prior to the project

start date of 2003. Approval to use the land was granted by the village council in

2002 but the format and minutes of this meeting were not seen by the due diligence

team. Neither the Sept 2008 Community Developments presentation, the Idete EIA

or Stakeholder Report of 2007 mention any village consultations prior to 2004. This is

after the official project start date of 2003.

Format, regularity, minutes

Since completing the first stakeholder consultation process in December 2004, Green

Resources has developed a strong theoretical framework for conducting ongoing

stakeholder meetings. The process, as described in Green Resources‘ standard

operating procedures are as follows (source: Green Resources presentation on

community developments, Sept 2008):

1) Stakeholder identification i.e. Primary (Direct) and Secondary (indirect)

stakeholders.

2) Keep updates the stakeholder about the company‘s achievement and failures

(after every three month in a year).

3) Detailed socio-economic survey for the stakeholders after every three years.

4) Keep records

It is Green Resources‘ policy to hold key stakeholder meetings every year in July with

full consultations once every three years and quarterly updates on Green Resources‘

progress towards its village development goals. The parties allow Green Resources

an opportunity to reward its staff and updates on the project‘s progress are given.

For projects already fully underway, Green Resources have informed us that these

stakeholder activities are working well. For the Idete project it remains unclear

whether the company has conducted any recent stakeholder meetings, aside from

the 2008 plantation party. The Green Resources community development officer

claims that the Idete consultation plan is still being developed.

Community assistance

The community assistance programme is the second key element in the stakeholder

engagement strategy. Social assistance, healthcare and education budgets from

local government are low and inadequate meaning that Green Resources has an

opportunity to use its financial resources to make a real difference to the lives of its

37

employees and their families. But it is important that the company spends money on

the issues of greatest concern to villagers and in a sustainable manner.

Non-plantation issues of concern to the villages were identified during the 2004 and

2007 stakeholder consultations and an assistance plan developed internally to meet

some of these concerns. As part of the due diligence process, we questioned the

village council about the main development challenges they face and these appeared

to be broadly in line with those areas identified for assistance by Green Resources.

Two issues of concern that were not being addressed by Green Resources were the

lack of clean drinking water and the absence of transportation to the plantation site.

According to Green Resources sources, the company has, to date, provided

36,300,000 Tsh in equipment to Idete in 2008. However, according to the GRL

budget, the total amount allocated to this task is 102,000,000 Tsh (64,000 EURO).

Members of Green Resources staff and the Idete village council showed the due

diligence team the following Green Resources community investments:

A new school building, supposedly a kindergarten, with new furniture.

A new bridge over a small river, which is a feeder road to the village (and may

be used for Green Resources timber transportation)

A one-off consignment of medical equipment to the village dispensary

Some low grade building materials for the construction of a new village council

meeting house

Pine trees surrounding the school area

Additional items as identified by Green Resources but not visible, expressly

mentioned or pointed out during the site visit include:

Provision of 120,000 seedlings to villagers

2 primary school classrooms

A second new bridge

Water infrastructure

There is a wide disparity in budgeted and spent funds for Idete community

development implies there is a serious bottle neck in disbursing community

assistance funds.

Furthermore, the amount Green Resources claims to have spent on certain activities

seems to be much higher or lower than market prices or reasonable cost estimates.

For example the amount allocated for the purchase of 25 bags of cement is

3,000,000 Tsh, meaning a price per bag of 120,000 Tsh. 2008 market prices for a 50

kg bag cement are a maximum of 25,000 Tsh. The problem of auditing community

38

expenditure is compounded by the fact that the budget lines give very little detail on

what equipment or services have actually been purchased.

Finally, the figures for community expenditure are all large whole numbers, which

implies that some or all of the expenditures have been estimated.

Conclusion: Green Resources is not a public service provider and any donation of

goods or services is undertaken voluntarily. At the same time, it has an interest in

maintaining good relations with the village since it provides much of the permanent

and temporary labor force for the Idete plantation. Members of the Idete village

council voted overwhelmingly in favor of the investments that Green Resources had

made and thought the company was brining benefits to the community. The company

must ensure that it continues to help meet the needs of the Idete village and manage

expectations about what it is and is not capable of providing.

There are some serious causes for concern related to community programme

management and finances. Green Resources must ensure that it develops a clear,

accurate and transparent community assistance budget and comes good on money it

appears to have budgeted on a company level to help the Idete village. It was also

not made clear which activities had already been undertaken by GR and there seems

to be a disconnect between what is visible on the ground and what has been

budgeted.

This lack of managerial oversight and financial discipline indicates that GR is not

giving sufficient attention to its responsibilities towards the Idete community. The

situation is not irreconcilable. It should also be recognized that the project is still at an

early stage. Nevertheless, this issue should be addressed as a matter of priority.

9. Level of corruption

Tanzania ranks 102nd in the Transparency International corruption perception index,

with a score of 3 out of 10. This is a low ranking and implies that ―corruption is seen

as serious challenge by country experts and businessmen‖. In comparison with other

sub-Saharan African countries Tanzanian ranks 16 out of 47; significantly higher than

average.

Tackling corruption is highly dependent on the will of political leaders and the actions

they take to fight it. In Tanzania there has been an independent anti-corruption

bureau since 1966. It underwent radical changes in structure, mandate and name in

2001 and 2004 and is now knows as the Prevention of Corruption Bureau (PCB).

39

President Kikwete has been actively speaking out against corruption since he took

power in 2003.

One of the biggest corruption scandals in recent history took place in February 2008

when a Parliamentary select committee presented a report investigating a

controversial contract between the government and Richmond Development

Company to generate power. The allegations made in the report led to the

resignation of the Prime Minister and cabinet ministers, including the then director of

the PCB. As a result, President Kikwete felt impelled to dissolve the entire cabinet

and appoint a new prime minister. The move was welcomed by Parliament and the

general public.

By taking tough action against high level corruption Kikwete has sent a strong signal

to businesses and officials. However that a scandal of this magnitude can occur and

at the highest levels of government indicates the extent to which corruption is often

part of everyday business life in Tanzania.

In the World Bank Group‘s 2004 Investment Climate Assessment it was found that

there exist wide geographical differences in the perception of corruption. The Iringa

and Mbeya provinces, where the Idete project is located was ranked second highest

with 64% reporting it as a ―major‖ or ―serious‖ problem.

However the prevelance of corruption on a national or regional level does not imply

that Green Resources are or have been involved in corrupt practices.

Conclusion: It is exceptionally difficult for third parties to uncover evidence of

corruption with such a short time on site (2 days) and such action risks damaging the

trust and level of communication between the due diligence team and Green

Resources. We cannot therefore make any categorical statements about this issue

except to say that Green Resources management seem well aware of reputational

risks of engaging in corrupt business practices and that no evidence was found or

suggestion made that Green Resources had engaged in such activities.

10. Political stability

Tanzania has a relatively stable government and has made major reforms under

President Kikwete to make the country more ―pro-business‖. These reforms include

new land and company ownership laws and financial support for the Tanzanian

Investment Centre, aimed at attracting foreign businesses. Since coming into power

40

President Kikwete has suffered a decline in popularity, due in part to corruption in his

cabinet and his failure to resolve long running political and ethnic tensions.

The risk of political crisis leading to the possible renationalization or forced

expropriation of private companies is very low. The main political divisions in

Tanzania are between the ruling CCM party, which is predominately Muslim, and the

Christian opposition. Tensions between the Revolutionary Government of Zanzibar

and the CCM dominated government in Dodoma are also running high, although the

chances of violent conflict are minimal.

Doing business in Tanzania has been made much easier since the implementation of

certain reforms. According the World Bank doing business survey, Tanzania ranks

127th out of 181 countries and 14th out of 46 sub Saharan countries. Among these, it

ranks top for ―enforcement of contracts‖ and towards the bottom for ―issuance of

construction permits‖. Tanzania‘s position in the main index has slipped by 3 since

2007 due mainly to improvements in other countries in starting businesses.

Tanzanian taxation levels are roughly in line with neighboring countries, as is the

ease of setting up a business and obtaining the relevant licenses to operate.

Employment laws strike a good balance between allowing the employer flexibility and

the rights of workers. There is a good legal framework in place for protecting the

interests of investors versus that of claimants. However, in spite of a good legal

framework, the court system is notoriously inefficient and corrupt (Bertelsmann 2008

Tanzania Country Report15).

Conclusion: Tanzania is a well established democracy and the current government is

actively encouraging private foreign direct investments. The risk of forced appropriate

of privately held land, property or funds is thus low.

As is often the case in Africa, there is a wide disparity between the theoretical and

actual ease of doing business. In the case of Green Resources, long delays in the

issuance of title deeds for the land and obtaining DNA approval are examples of

unforeseen and unsanctioned bureaucratic obstacles that are a common feature of

doing business in Africa.

Green Resources may also encounter serious difficulties if it is required to bring a

case to court or defend itself again litigation. There is a low risk of this occurring but

the consequences of taking or being subjected to legal action could be very serious.

15

Bertelsmann Stiftung, BTI 2008 — Tanzania Country Report. Gütersloh: Bertelsmann Stiftung, 2007

41

11. Conclusions

From the above assessment it is evident that the Idete reforestation project features

several risks which could seriously compromise CDM project registration. However,

many of these risks are not untypical for CDM afforestation/reforestation projects.

Most of these risks can actually be addressed and mitigated with accurate

preparation and transparent documentation. This applies for the investment test and

the monitoring plan. One critical issue that has not yet been adequately addressed is

early consideration of the CDM. This has not been proven conclusively and leads to

high registration risk. In addition, external risks such as title deed issuance and

national forest threshold definitions need to be approached with highest priority

because they can lead to substantial delays in project registration.

Based on the current Idete forest project documentation available until today the

overall risk for project registration failure under the CDM is rated high.

The assessment of the environmental and social aspects of the Idete project –

realized in more detail than mandatory for CDM project registration – resulted in the

following ratings:

Low risk for environmental aspects as of today. However, several

environmental variables (e.g. ground water level) need to be monitored

accurately in order to take timely measures to prevent any potential

environmental risk in the future.

Medium risk for social aspects. Green Resources has a sound employment

strategy that appears to meet all relevant regulations and ILO conventions

ratified by the Tanzanian government. On the operations side, more work

needs to be done in terms of ensuring comprehensive health and safety

training and updating and managing contracts for casual workers. Green

Resources has an active and positive relationship with the Idete community.

However it appeared that to that strategic plans for community engagement

are not yet fully implement and that budgetary oversight is weak. In order to

maintain a positive relationship with the community and to ensure that the

Green Resourcs makes a substantial, sustainable contribution to poverty

reduction in Idete, these issues must be addressed as a matter of priority.

42

Annex

List of documentations provided to the DD-team by Green Resources:

Project Information Note (PIN) of Idete project, 28th March 2008

Forest management plan for Idete Forest Project, Second Edition 2008

Environmental Impact Assessment (EIA) on proposed Mafinga and Idete

Forest Projects in Mufindi District, Iringa Region, Tanzania, Revised Report,

January 2008

Work instructions and guidelines for plantation operations Green Resources

Ltd, April 2008

Draft version of the Monitoring Plan, 11 September 2008

Green Resources Annual report 2007

Tanzania stumpage fee 071205.xls

Budget Idete 2008 080130.xls

IRR Idete LT Budget081014.xls

The Forest Regulation published 071123.pdf

Presentation to new due dillicence.ppt

Costs of Community projects at Idete.xls

start date_alllocation of land.pdf

change_from_escarpment to grl.pdf

Comments from stakeholders corrected 23.8.2007.doc

Project Boundary.pdf

Map1_Landuse-cover.pdf

Map2_Government Forest Reserves.pdf

Map3_Land Eligilibility.pdf

Monitoring discrepancies by sector:

Monitoring of the project boundary: Only one variable is listed in the tables. All

the described procedures should be added as variables in the table to be able

to monitor them.

Monitoring of the forest establishment: Information on the number of species

planted, deviation in the implementation in relation to the management or

silvicultural plan, planted areas affected by natural and anthropogenic

disturbances, and seedlings planted by species as part of gap planting are

missing and need to be added as data variables to the already listed variables

in the respective table. These parameters need to be monitored only during

the early stage of the forest establishment covering the 3-5 year period of the

planting activity.

43

Monitoring of the forest management activities: Damage recording during

harvesting/ thinning/pruning activities, biomass burning practices (for fire

breaks) and quantity of fossil fuels used in the forest management and

operations during each year of the project need to be added.

The stratification process and the sampling framework: Information is only

addressed partially respectively would be addressed in the PDD as ex-post

stratification has not yet been carried out respectively is underway. Sample

size, sample intensity, and amount of samples need to be added in the

monitoring information. The sample size should be estimated according to the

methodology requirements, the number of samples need to be calculated

applying the correct tool16 as specified in the CDM-AR-PDD guide17 and not

the Winrock Plot tool as mentioned in the draft monitoring plan.

Monitoring of the baseline net GHG removals by sinks: Both tables should be

removed as the monitoring of baseline net removals is not required by the

selected methodology as correctly stated in the monitoring plan.

Monitoring of the actual net GHG removals by sinks: Data to be collected and

archived for actual net GHG removals by sinks: sub-stratum ID if any,

accuracy, tree species, age of plantation, number of trees, mean DBH, etc.

need to be added.

Data to be collected and archived in order to monitor the GHG emissions by

the sources: Wording of some variables is incorrect, needs to be adjusted.

Some variables are missing (e.g. emission from fossil fuel use within project

boundary, and several variables concerning biomass burning). Some variables

have to be removed due to methodology version change. The topic emissions

due to biomass burning has to be incorporated into the project. Although the

planting area is not cleared by burning, the planted areas are affected by

biomass burning to the fire barriers (between 15-60 m wide) created around

the planted areas. As this represents a considerable amount of GHG

emissions this needs to be accounted for. As the methodology is not

completely clear as were to address this issue it nevertheless needs to be

included as this would represent a major risk for project registration.

Leakage: table needs to be updated according to new methodology version. If

leakage from fuel wood is considered to be insignificant it has to be addressed

by using the Tool for testing significance of GHG emissions in A/R CDM

project activities. Prevention activities need to be addressed and explained in

the PDD.

Quality control (QC) and quality assurance: The current quality control and

quality approach covers uncertainty assessment and procedures to reduce

16

EB 31, Annex 15: Calculation of the number of sample plots for measurements within A/R CDM project activities 17

EB 42, Annex 12: Guidelines for completing CDM-AR PDD and CDM_AR-NM

44

uncertainties for data measurement and data entry but not for data analyzing

and data storage. These are highly important topics and should be included

according to the GPG LULUCF18.

Name of person(s)/entity(ies) applying the monitoring plan: Information if

person/entity is also a project participants listed in Annex 1 of the monitoring

plan needs to be added

18

Good Practice Guidance for Land Use, Land-Use Change and Forestry, 2003